Kamlesh Rao is a Kotak veteran, having spent close to two decades with the Group. Kamlesh took charge of Kotak Securities - the retail brokerage arm of Kotak Mahindra Group in August 2014. In an interview with Kumar Shankar Roy, the CEO talks about a number of things including what traits to look for in smaller companies' management.
Which kind of companies you never recommend to your clients?
We always recommend companies which have a sustainable competitive advantage (moat) and a credible management. A strong balance sheet and decent return ratios are other considerations while recommending any investment idea. We would avoid companies with questionable managements, volatile earnings profile and weak balance sheets. We also try and avoid recommending companies which are into commoditised businesses and no competitive advantage.
How do you validate the management quality of smaller companies?
It is really difficult to pinpoint specific traits which decide management quality. But, some of the things which indicates to a good management are: consistent dividend records, low or no inter-group dealings, capex costs per unit which are comparable to industry standards, achieving the guidance given, transparent annual reports, sharing of information with shareholders, disclosing bad news upfront, etc.
How should investors use all the news and information today?
Information has become commodity nowadays and is not a competitive advantage, except for company insiders and close management circles. One should be able to arrive at credible data and inferences from the information. This comes with at least basic knowledge of the company, industry. If not possible, one should try and verify the impact of the information with experts. Acting on information without understanding the implications of the same, is a recipe for making losses.
What are your key expectation from the Union Budget?
Relief on direct taxes, continuation of Government capex and increased allocations for social sectors.
Which is the most promising sector, theme or segment of the market?
We currently are positive on sectors like Banks, Autos, Road Construction, Defence, Power equipment
What are the avoidable sector, theme or segment of the market?
We would currently avoid sectors like Telecom and Real Estate
Post demonetisation, has the investment case of the consumption story been impaired?
We expect demonetisation to impact areas like staples and low end-consumption in the very short term. We are, in fact, seeing a swift revival in these as cash comes into circulation. We expect areas of discretionary spends to revive with a lag as the wealth effect will slow down purchases in the short term.
After demonetisation, digitatisation has gained prominence. How can Indian investors participate and profit from this trend?
One can look at companies which are into domestic banking automation and other hardware companies. Also, benefit by investing in companies which are present in sectors having a large unorganized presence currently. Demonetisation and GST are expected to benefit organized players at the cost of unorganized participants.
Ask Value Research 
New episodes every Friday 
New Process Alert 
Seems like you've uploaded a wrong QR code. Please upload the QR code downloaded from MF Central platform.
